IRS Tax Brackets: Understanding How They Work


There are two basic types of IRS Tax Brackets. The personal income tax, levied on incomes of households and unincorporated businesses, and the corporate (or corporation) income tax, levied on net earnings of corporations. As income increases for both the individual and business, so does the tax rate. This is known as "progressive" income taxation.


Individual IRS Tax Brackets

Under present tax law, there are six tax brackets for individual taxpayers: 10%, 15%, 25%, 28%, 33%, and 35%. The level of taxable income for each bracket differs according to filing status (such as married filing jointly, singles, or heads of household) and is revised slightly every year.


Long-term capital gains receive preferential tax treatment both for individuals and corporations. Assets held for more than 12 months are taxed at a top rate of 15%, versus a top rate of 35% for short-term gains on assets held for 12 months or less.


Because capital gains rates reward taxpayers in a position to take risks, and because loopholes and tax shelters enable the wealthiest corporations and individuals to escape the higher tax brackets, the progressiveness of the tax system has often been more theoretical than real. That is, those with more means, in theory are supposed to pay more in taxes, while those with less pay less.


In practice, at least in my opinion, the tax code always have favored the hyper-wealthy who can take advantage of unique structuring, while punishing those who are attempting to create wealth.


With these warnings, here are the four tax rate schedules of income tax brackets for 2011.

  • Tax-Bracket-Single
  • Tax-Bracket-Married-Joint (or qualifying widower)
  • Tax-Bracket-Married-Separate
  • Tax-Bracket-Head-of-Household


Corporate Tax Brackets

Taxable income over But not over Rate
$0.00 $50,000.00 15.00%
$50,000.00 $75,000.00 25.00%
$75,000.00 $100,000.00 34.00%
$100,000.00 $335,000.00 39.00%
$335,000.00 $10,000,000.00 34.00%
$10,000,000.00 $15,000,000.00 35.00%
$15,000,000.00 $18,333,333.00 38.00%
$18,333,333.00 And over 35.00%


It is important to note that businesses pay corporate tax, and the shareholders also pay income tax on dividends they receive. Albeit at a lower, rate, at 15% but there is still very little dispute that this creates double-taxation.


For instance, a shareholder of a company that earns over $20 million dollars: The company had to pay 35% of its profits to the US Treasury. Now, when the Company pays dividends, the shareholders pay 15% to the US Treasury as well. This equals a total tax rate of 50%. Numerous techniques have been developed over the years to avoid this double taxation. For instance, election as a Subchapter S corp allows for single, pass-through taxation.


The impact of legislation on the effective tax rate.

The other big changes of the tax code which have raised and lowered income tax brackets while reducing and increasing credits and deductions:

  • The Energy Tax Incentives Act of 2005
  • The Working Families Tax Relief Act of 2004
  • The Jobs and Growth Tax Relief Reconciliation Act of 2003
  • The Military Family Tax Relief Act of 2003
  • The  Economic Growth and Tax Relief Reconciliation Act of 2001
  • The Internal Revenue Service Restructuring and Reform Act of 1998
  • The Taxpayer Relief Act of 1997 The  Revenue Reconciliation Act of 1993
  • The Tax Reform Act of 1986
  • Tax Reform Act of 1984
  • The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA);
  • The Economic Recovery Tax Act of 1981 (ERTA)
  • The Tax Reform Act of 1976


With all these charges…guess what. Regardinless of the income tax brackets…The revenues the IRS collects has been right around 21% of Gross Domestic Product.


If you have a tax matter you need assistance with, contact us. Call us at 888-727-8796 or email info@irsmedic.com.